US Federal Reserve Chairman Jerome Powell will stress in his speech at a crucial central bankers’ meeting next week that the Fed is determined to tame high US inflation even if that means a recession, economists say.
Investors’ attention is already focused on speeches by officials at the annual economic conference in Jackson Hole, Wyoming, awaiting fresh signals on interest rate hikes as central banks try to rein in the highest inflation in four decades. Jerome Powell’s speech on Friday is expected to garner the most interest.
“The key message will be the Fed’s dogged determination to reduce inflation, even though it knows it may jeopardize the outlook for economic growth in the short term,” said Lou Crandall, an economist at Wrightson ICAP.
The Fed’s July meeting minutes highlighted that stance, but the mention got lost amid headlines about a potential rate hike slowdown, Crandall added.
As he pointed out, Powell’s speech is a good opportunity to highlight the Fed’s determination and commitment to maintain the same stance against the possibility of a slowing economy and a weak labor market.
“Inflation has reached such a level that they have no choice but to accept that risk,” Crandall added.
Economists are divided on whether Powell will give any indication of the size of an expected rate hike in September.
Carl Tannenbaum. economist at Northern Trust, believes Powell will signal a hike of around 75 basis points in September.
“I think Powell will argue passionately that in the long run, being aggressive now will turn out to be positive for jobs, markets and growth,” Tannenbaum noted.
Steven Stanley, an economist at Amherst Pierpoint, expects Powell to outline the Fed’s broader moves and not focus on the next monetary policy meeting.
“If I were him, I wouldn’t be focused on whether I’m going to raise rates by 50 or 75 basis points in September,” Stanley said.
Over the past two weeks, Fed officials have been stressing that the size of a rate hike in September is data-dependent, and as Stanley pointed out, between the Jackson Hole speech and the Fed meeting will be another round of macro measures that will be announced.
Economists also told MarketWatch what they think Powell won’t say at the upcoming conference.
Stanley believes that Powell will not send the message that inflation will remain high for longer than expected.
“I don’t know if it’s wise for any Fed official to stand in front of an audience and say that inflation is going to stay high for longer than you think,” especially since the central bank wants to keep long-term expectations for the economy low. inflation, Stanley said.
Tim Duy, economist at SGH Macro Advisors, said that “suspicions are growing in the market that the Fed will declare victory over inflation when it hits 3.5%.” So Powell’s message will aim to calm those concerns.
Several economists believe that the market should start focusing on the long-term fight against inflation.
Avery Shenfeld, an economist at CIBC World Markets, noted that markets are hoping for “some combination of continued growth to support earnings, but lower inflation that will convince central bankers to ease monetary policy.”
Shenfeld emphasized that there is a path to a soft landing – with lower inflation in 2023 without a recession – but, he said, the Fed is not as concerned about 2023 as it is about the CPI outlook in 2024.
“The Fed’s concern in 2023 will be whether the conditions are in place to keep inflation low in 2024,” he said.
Source: Capital
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